CarMax Inc. (KMX:US) declined the most in more than two years after the largest U.S. seller of used cars reported quarterly profit that missed analysts’ estimates and said third-party lenders are getting stricter on subprime loans.
CarMax fell (KMX:US) 9.4 percent to $48.05 at 10:27 a.m. in New York trading and earlier traded at $47.82 for the steepest intraday decline since September 2011. Through yesterday’s close, the stock had climbed 41 percent, outpacing the 27 percent rise in the Standard & Poor’s 500 Index.
CarMax plans to begin testing subprime auto loan originations through its finance unit after the Richmond, Virginia-based company said its lending partners began to tighten their terms. Net income in the quarter ended Nov. 30 rose to $106.5 million, or 47 cents a share, from $94.7 million, or 41 cents, a year earlier. The average estimate of 14 analysts surveyed (KMX:US) by Bloomberg was for a profit of 48 cents.
“Given the relevance of subprime to our business and the overall market, we believe it is prudent to gain further insight into underwriting and servicing accounts within this credit profile,” CarMax said in a statement. The company plans to originated about $70 million of loans in the next 12 months, according to the statement.
While surging light-vehicle sales have been one of the bright spots in the U.S. economy, the auto market’s growth is increasingly being fueled by borrowers with imperfect credit. Such car buyers have been accounting for more than a quarter of loans for new vehicles, the highest proportion since Experian Automotive started tracking the data in 2007.
To contact the reporter on this story: Craig Trudell in Southfield, Michigan at email@example.com